direct tax code: main features

The Direct Tax Code was presented in parliament on 30th August 2010. Even after its becoming an act of law, it will be put into operation only from 1st April 2012. Some of the main provisions of the Code, as it stands now, are given below:

Income tax slabs for individuals:

• Up to Rs. 200,000 – no tax
• Rs. 200,000 – 500,000 – 10%
• Rs. 500,000 – 1000,000 – 20%
• Above Rs. 1000,000 – 30%
• No surcharge or cess over and above the tax.
• No special slab for women; no tax up to Rs. 250,000 for senior citizens

Deductions allowed for individuals:

• Up to Rs. 100,000 in specified savings such as provident fund and NSC
• Up to Rs. 50,000 in respect of expenditure on children’s schooling, health insurance premium, medical reimbursement etc
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• Up to Rs. 150,000 in respect of interest on house loan for self-occupied property; pre-construction interest deductible
• Standard deduction for income from house: 20%
• No deduction for instalments paid for repayment of housing loan

Other important provisions for individuals:

• No tax on interest earned on PF deposits.
• No tax on receipts from new pension scheme, annuity schemes, pure life insurance schemes
• No capital gain tax on shares held for over one year and for which STT has been paid
• Short term gain on shares [held for up to one year] are given deduction of 50% and then taxed at 5, 10 and 15%as per relevant slab
• Holding period for classification as long term reduced to 12 months

Corporate tax:

• 30% for domestic and foreign companies; no surcharge or cess.
• Minimum alternate tax [MAT] at 20% on book profits
• Certain tax benefits are allowed to SEZs
• Wealth tax introduced for companies
• Tax audit limits enhanced
• More regulatory powers and new rules for taxation of foreign subsidiary, cross-border transactions, investment abroad, etc

My comments on the Code can be seen here.